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RECTANGLES


ExxonMobil Surges Off Support

08/04/08 09:55:13 AM
by Arthur Hill

After a rather sharp correction from mid-May to July, ExxonMobil found support and surged on good volume. A little follow through would trigger a breakout.

Security:   XOM
Position:   Accumulate

Figure 1 shows weekly bars and the long-term trend. ExxonMobil (XOM) advanced from October 2005 to June 2007 and then embarked on a long consolidation. Broken resistance from the 2006 high turned into support throughout 2007 and into 2008. XOM bounced off this support level three times as it consolidated for over a year (blue arrows).

FIGURE 1: XOM, WEEKLY. Note that ExxonMobil advanced from October 2005 to June 2007 and then embarked on a long consolidation.
Graphic provided by: TeleChart2007.
 
The consolidation pattern looks like a large rectangle with support at 79 and resistance at 95. These are neutral patterns, but the prior advance (2006–07) argues for a bullish bias. A break above rectangle resistance would signal a continuation of the bigger uptrend. Think of the three-year pattern as a sharp advance and flat flag consolidation. This big rectangle is a long rest within the long-term uptrend.

With a rectangle in play on the weekly chart, traders should watch support and the daily chart for a bounce. In addition, 10-period relative strength index (RSI) hit 30 (oversold) for the second time this year and this coincided with a support test. The combination of oversold conditions and support improves the chances of a bounce.

FIGURE 2: XOM, DAILY. XOM bounced with a high-volume advance.
Graphic provided by: TeleChart2007.
 
XOM bounced with a high-volume advance (Figure 2). This move reinforces support and we should watch the next resistance level for a follow-through breakout. The May trendline and broken support mark resistance around 84.5 and a break above this level would reverse the two- to three-month downtrend. The first upside target would be a rectangle resistance around 95.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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E-mail address: arthurh@tdtrader.com

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